BCE Inc. has announced:

that 965,769 of its 10,144,302 fixed-rate Cumulative Redeemable First Preferred Shares, Series AA (“Series AA Preferred Shares”) have been tendered for conversion on September 1, 2017, on a one-for-one basis, into floating-rate Cumulative Redeemable First Preferred Shares, Series AB (“Series AB Preferred Shares”). In addition, 2,219,863 of its 9,855,698 Series AB Preferred Shares have been tendered for conversion on September 1, 2017, on a one-for-one basis, into Series AA Preferred Shares. Consequently, on September 1, 2017, BCE will have 11,398,396 Series AA Preferred Shares and 8,601,604 Series AB Preferred Shares issued and outstanding. The Series AA Preferred Shares and the Series AB Preferred Shares will continue to be listed on the Toronto Stock Exchange under the symbols BCE.PR.A and BCE.PR.B, respectively.
The Series AA Preferred Shares will pay on a quarterly basis, for the 5-year period beginning on September 1, 2017, as and when declared by the Board of Directors of BCE, a fixed cash dividend based on an annual fixed dividend rate of 3.61%.

The Series AB Preferred Shares will continue to pay a monthly floating adjustable cash dividend for the 5-year period beginning on September 1, 2017, as and when declared by the Board of Directors of BCE. The monthly floating adjustable dividend for any particular month will continue to be calculated based on the prime rate for such month and using the Designated Percentage for such month representing the sum of an adjustment factor (based on the market price of the Series AB Preferred Shares in the preceding month) and the Designated Percentage for the preceding month.

It will be recalled that after the sending of the conversion notice, the company announced that BCE.PR.A will pay 3.61% of par for the next five years, while BCE.PR.B will continue to pay 100% of Canadian Prime [currently 2.95%], reset quarterly, based on par.

The most logical way to analyze relative pricing of these issues is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., BCE.PR.A and BCE.PR.B). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedFloater / RatchetRate Strong Pair graphically by plotting the implied average Prime rate against the next Exchange Date (which is the date to which the average will be calculated).

*Click for Big*
To my surprise, the BCE.PR.A / BCE.PR.B pair is not currently showing a significant price differential, resulting in a break-even average prime rate of 3.69% for the period to 2022-9-1. We’ll see how long that lasts!

This entry was posted on Thursday, August 24th, 2017 at 12:49 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.

## BCE.PR.A / BCE.PR.B : 6% Net Conversion To FixedFloater

BCE Inc. has announced:

It will be recalled that after the sending of the conversion notice, the company announced that BCE.PR.A will pay 3.61% of par for the next five years, while BCE.PR.B will continue to pay 100% of Canadian Prime [currently 2.95%], reset quarterly, based on par.

The most logical way to analyze relative pricing of these issues is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., BCE.PR.A and BCE.PR.B). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedFloater / RatchetRate Strong Pair graphically by plotting the implied average Prime rate against the next Exchange Date (which is the date to which the average will be calculated).

Click for BigTo my surprise, the BCE.PR.A / BCE.PR.B pair is not currently showing a significant price differential, resulting in a break-even average prime rate of 3.69% for the period to 2022-9-1. We’ll see how long that lasts!

This entry was posted on Thursday, August 24th, 2017 at 12:49 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.